Planning to rent a car in Iceland? Learn how Iceland’s new road tax works, why it was introduced, how it affects tourists, and how you can save money on your rental. I’ll also explain why not all rental car companies charge the fee the same way and share my recommendations after living in Iceland for the past 10 years.
One of the biggest reasons I recommend renting a car in Iceland is the freedom it gives you.
Some of my favorite memories have come from pulling over at an unexpected waterfall, taking a detour because someone mentioned a hidden canyon, or completely changing my plans after seeing that the weather was better in another part of the country.
Those spontaneous moments are often the highlights of an Iceland trip.
That’s why, when Iceland introduced a new road fee at the beginning of 2026, I immediately started getting questions from members of the All Things Iceland community.
People wanted to know:
- What exactly is Iceland’s new road tax?
- Why did Iceland introduce the road tax fee?
- Does it apply to tourists?
- How much will it cost?
- Should I still rent a car?
- How to budget for Iceland’s new road tax fee
- How can you save on a rental car in Iceland?
If you’ve been wondering the same thing, you’re definitely not alone.
In this guide, I’ll explain everything you need to know about Iceland’s new road fee, including why it was introduced, how it works, how it affects tourists renting cars and camper vans, how different rental companies handle the fee, and some practical ways to save money while planning your Iceland road trip.
What Is Iceland's New Road Tax?
Although you’ll often hear people, including me, refer to it as Iceland’s new road tax, the official name is the kilometer fee, or kílómetragjald in Icelandic.
The fee officially came into effect on January 1, 2026, and it’s designed to help fund Iceland’s road infrastructure in a different way than before.
Under the standard government system, most passenger vehicles are charged 6.95 ISK per kilometer driven, although rates vary depending on the vehicle’s weight and classification.
Unlike a toll road where you stop to pay at a booth, this fee is based on the total number of kilometers a vehicle travels.
For Icelandic residents who own a vehicle, the fee is reported and paid according to government regulations.
For visitors, however, the process is much simpler because your rental company handles it for you.
That means you don’t have to register with the Icelandic government or report your mileage yourself. Instead, the rental company collects the fee as part of your rental agreement before paying it to the government.
This is where many travelers become confused because not every rental company chooses to pass that fee on in the same way.
I’ll cover that in detail a little later because understanding this difference can make budgeting your trip much easier.
Experience Tip: One thing I've noticed after helping thousands of travelers plan trips to Iceland is that most people assume every rental company calculates this fee exactly the same way. That's actually not the case, and knowing the difference before you book can save you both money and uncertainty when you're planning your budget.
Why Did Iceland Introduce the Kilometer Fee?
Moving Away from Fuel Taxes
At first glance, it’s easy to assume that Iceland simply added another fee for travelers. But the reality is a bit more nuanced.
For many years, Iceland paid for a significant portion of its road maintenance through taxes on gasoline and diesel fuel. The idea was simple: the more you drove, the more fuel you purchased, and the more you contributed toward maintaining the country’s roads.
That system worked well when nearly every vehicle relied on fossil fuels. However, Iceland has seen a rapid increase in hybrid and fully electric vehicles over the past several years. Those vehicles still use the roads every day, but they purchase much less, or no, gasoline or diesel.
As a result, the government was collecting less revenue from fuel taxes while road maintenance costs continued to grow. The kilometer fee was introduced to create a funding system that applies more consistently across different types of vehicles, regardless of how they’re powered.
As with any major policy change, it has generated plenty of discussion within Iceland. Some residents feel the reduction in fuel taxes doesn’t fully offset the new kilometer fee, while others see it as a fairer way to fund the country’s road network.
For travelers, though, the most important takeaway is understanding how the fee works and how your rental company chooses to collect it, because that’s what will ultimately affect your budget.
Does the Kilometer Fee Apply to Tourists?
Yes. Whether you’re visiting Iceland for a long Ring Road adventure, spending a week exploring the South Coast, or taking a short getaway around Reykjavík and the Golden Circle, this new fee applies to rental vehicles.
If you’re someone who loves taking scenic detours (and trust me, Iceland will tempt you to do exactly that), knowing how your rental company charges this fee can give you much more peace of mind.
How Rental Car Companies Charge Iceland's New Road Fee
Some Companies Charge by the Kilometer
This is probably the pricing model most travelers expect. Some rental companies simply pass the government’s kilometer fee directly on to you. When you pick up your vehicle, the current odometer reading is recorded.
When you return it, the rental company calculates how many kilometers you’ve driven and charges the corresponding road fee. The benefit of this approach is that you’re paying for exactly the distance you traveled.
If you only plan to drive around Reykjavík for a couple of days, this could result in a relatively small road-fee charge. The downside is that your final cost isn’t always easy to predict.
If your plans change, which they often do in Iceland, you may end up driving much farther than you originally expected. Suddenly, that carefully planned travel budget starts to look a little different.
Other Companies Charge a Flat Daily Road Fee
Some rental companies have chosen a different approach.vRather than charging based on every kilometer driven, they charge a fixed road fee for each rental day.
For example, Go Car Rental Iceland and Go Campers currently charge a mandatory road fee of €10.50 per rental day, regardless of your insurance coverage or how many kilometers you drive during your rental.
Personally, I really appreciate this pricing model. One of the first things I tell people planning an Iceland trip is to leave room for spontaneity.
Maybe you hear about a hidden hot spring from another traveler.
Maybe someone recommends an incredible canyon that wasn’t on your itinerary.
Maybe the weather forecast changes overnight, and you decide to spend the day exploring a completely different region.
Those things happen all the time here. With a flat daily fee, you’re free to make those decisions without wondering whether every extra kilometer is increasing your final bill.
Instead, you already know what the road-fee portion of your rental will cost before your trip even begins. For me, that kind of predictability is worth a lot.
Experience Tip: I've changed my itinerary countless times because of Iceland's weather. It's one of the best travel decisions you can make here. Having a predictable daily road fee means I can focus on enjoying the adventure instead of mentally calculating extra costs every time I decide to drive somewhere new.
The Ultimate Guide to Renting a Car in Iceland
If you're still deciding which rental car is right for your trip, I've created a free Ultimate Guide to Renting a Car in Iceland that goes far beyond the new kilometer fee.
Inside, I cover how to choose between a 2WD and a 4x4, Iceland-specific insurance recommendations, gravel roads versus F-roads, parking rules, winter driving tips, common mistakes to avoid, and much more. I recently updated it to include Iceland's new kilometer fee, so you'll have the latest information all in one place.
Is Renting a Car Is Still One of the Best Ways to Explore Iceland?
Absolutely. Even with this additional cost, I still believe renting a car is the best way to experience Iceland for most visitors.
One of the things I love most about living here is that Iceland constantly rewards curiosity. Some of the country’s most memorable places aren’t found on a typical itinerary. They’re discovered because you decided to stop at an overlook, follow a sign pointing toward a waterfall, or take a scenic detour after chatting with another traveler.
Having your own vehicle gives you that freedom. You’re not rushing to catch a tour bus, worrying about train schedules, or feeling like you have to leave somewhere just because everyone else is. Instead, you can experience Iceland at your own pace.
That’s something I think is incredibly valuable. Of course, the new kilometer fee does add another expense to your trip. But in the grand scheme of an Iceland vacation, I don’t think it’s a reason to avoid renting a car altogether.
Instead, it’s simply another cost to understand and plan for before you arrive.
Experience Tip: Some of my favorite days in Iceland have been the ones where I threw my original itinerary out the window because the weather was better somewhere else. That kind of flexibility is difficult to put a price on, and it's one of the biggest reasons I continue recommending rental cars over guided tours for many travelers.
Budgeting for the Iceland's New Road Tax
No matter which pricing model your rental company uses, my advice is simple: Plan for the road fee before you arrive.
Just like budgeting for fuel, parking, or accommodation, this is now another normal part of planning an Iceland road trip.
The good news is that once you’ve factored it into your budget, there really aren’t any surprises.
In fact, I think the bigger financial mistakes people make when renting a car in Iceland have nothing to do with the road fee at all.
- Choosing the wrong type of vehicle.
- Skipping important insurance coverage.
- Driving roads that aren’t suitable for their rental.
- Or underestimating Iceland’s weather.
Those are the kinds of mistakes that can cost hundreds, or even thousands, of dollars.
Compared to those, understanding the road fee is actually one of the easier parts of planning your trip.
Below is a way that you can save money on your rental car in Iceland.
How to Save Money on a Rental Car in Iceland (Even With the New Road Fee)
If you’re already planning to rent a car or camper van, there’s no reason not to take advantage of available discounts.
I’ve partnered with Go Car Rental Iceland and Go Campers because I’ve personally used both companies for years, and they’ve consistently provided excellent customer service and reliable vehicles for my adventures around Iceland.
When you book through my discount links, you’ll receive:
Go Car Rental Iceland
- 7% off your rental
- Free 4G WiFi (simply select it under the Extras section when booking)
Go Campers
- 7% off your camper van rental
- Free sleeping bag (select it in the Extras section)
The discounts are automatically applied when you book through my links and enter your rental dates, making them an easy way to offset part of Iceland’s new road fee while supporting All Things Iceland at no additional cost to you.
Continue Planning Your Iceland Road Trip
Understanding the new road fee is just one piece of the puzzle.
If you’re still deciding whether you need a 2WD or a 4×4, wondering which insurance is actually worth purchasing, or trying to understand Iceland’s gravel roads, F-roads, parking rules, and seasonal driving conditions, I’ve put everything together in my Ultimate Guide to Renting a Car in Iceland.
It’s completely free, regularly updated, and designed to help you avoid the most common mistakes travelers make before they even arrive in Iceland.
Frequently Asked Questions About Iceland's New Road Tax Fee
Can tourists avoid Iceland’s road fee?
No. If you’re renting a car or camper van in Iceland, the road fee is part of the cost of driving. The way it’s charged depends on your rental company, but it isn’t something visitors can opt out of.
Is it still worth renting a car in Iceland?
Absolutely. Even with the introduction of the road fee, I still believe renting a car offers the greatest flexibility and allows you to experience parts of Iceland that many tour groups never visit.
Why do some rental companies charge a flat daily fee?
Some companies have chosen to simplify the government’s kilometer fee by charging a predictable daily amount instead.
For example, Go Car Rental and Go Campers currently charge a mandatory road fee of €10.50 per rental day, regardless of how many kilometers you drive.
Is a flat daily fee better than paying per kilometer?
It depends on your travel style. If you’re planning very little driving, paying per kilometer could potentially cost less.
However, if you’re planning a Ring Road trip or simply want the freedom to take spontaneous detours without thinking about every kilometer, many travelers, including me, appreciate the predictability of a fixed daily fee.
Random Fact About Iceland
Did you know that Iceland’s famous Ring Road (Route 1) stretches approximately 1,322 kilometers (821 miles) around the entire island?
While many visitors dream of driving the complete Ring Road, some of the country’s most unforgettable experiences come from venturing beyond it. Scenic detours to places like the Snæfellsnes Peninsula, the Westfjords, the Westman Islands, or even into the remote Highlands often become the highlights of a trip. Snæfellsnes Peninsula Westfjords Westman Islands Highlands of Iceland
That’s one of the reasons I think it’s so important to understand how your rental company charges Iceland’s new road fee. If your itinerary changes—and trust me, it often does because of weather or unexpected discoveries—you’ll already know what to expect when it comes to your driving costs.
Icelandic Word of the Day
One of my favorite parts of the All Things Iceland podcast is sharing an Icelandic word or phrase at the end of each episode.
Today’s word is:
Kílómetragjald
Pronunciation: KEE-loh-meh-trah-gyald
The word is made up of two smaller Icelandic words:
- Kílómetri = kilometer
- Gjald = fee or charge
Put them together, and kílómetragjald literally means “kilometer fee.”
This is the official Icelandic term used to describe the country’s new distance-based road charge that came into effect in 2026.
So, if you happen to see news articles, government information, or conversations in Icelandic about the new road fee, you’ll likely come across the word kílómetragjald.
It’s a fun word to know—not just because it relates to this topic, but because it also gives you a little insight into how Icelandic words are often built by combining smaller words to create a very literal meaning.
Planning to rent a car in Iceland?
Before you book, grab my free Ultimate Guide to Renting a Car in Iceland. It includes everything you need to know about Iceland’s new kilometer fee, choosing the right rental car, insurance, F-roads, parking, winter driving, and more.
And if you’re ready to book your rental, don’t forget to use my 7% discount links for Go Car Rental Iceland (plus free 4G WiFi) or Go Campers (plus a free sleeping bag) to save money on your trip.